I am not going to call you any names Z. I read this today on www.investware.com regarding long term investing:
WHY INVEST FOR THE LONG RUN?
By Jason Ramage
During the last few years the stock market has become
incredibly popular. People who would have never thought
about risking money in stocks ten years ago have been highly
successful lately, buying just about anything. I've talked to
friends at work who say the only way to double or triple your
money is to trade (as opposed to invest) in stocks i.e., buy a
stock one week, and two weeks later, take the profit while
putting the money into something else for a quick profit.
Well, it works for some people, there's no doubt about that.
And a strategy like this has been working for several years.
The truth is, there are few strategies that haven't worked
wonderfully for investors this decade. The Dow has multiplied
over three times in the four years I have been investing! Who
can resist the urge to invest with the market's performing like
that? Watching investments in bonds or CDs grow by a few
percentage points per year, while the passing of 1,000 point
increments on the Dow is almost an everyday event, can't be
much fun. Of course, stocks are not for everybody.
But for teens and young adults with many years before they will
need the money for large purchases like a house or retirement,
it's a good idea to invest in stocks or a stock mutual fund. (Yes,
it's strange to be talking about retirement even when just
starting college, but if I had to bet on winning the Powerball or
ever cashing a Social Security check, I would go with
Powerball! What's better than betting $52 a year on Powerball
is investing $52 a year in stocks; if you invest wisely, you'll
come out far ahead of the bettors.)
Now it hardly makes sense to go through the trouble of
researching companies when one can make more money-and
faster-by day trading. If your intention when buying a stock is to
sell it a few weeks later for a quick profit, why trouble
yourself with research and after buying, waiting years for
something to happen. I've never tried day trading and don't have
any desire to, but I can imagine there must be much more thrill
and excitement watching stock prices jump from 80 to 95 and
down to 70 while working to get in at the low and out at the
high. At the end of the day, you might even double your money!
Long-term investors usually don't expect to double their money
for five years. So, why wait five years for something you can
have in one day?
The answer is that long term investing is based on sound logic
and the evaluation of a company's assets, liabilities, and equity.
Short-term trading practices are based more on luck than
anything else. Day traders look for patterns in the past to
predict the future. However, there is no real logic for the
day-to-day changes in stock prices and looking at the past all
the time will not help much in the future. If you're always
looking in the rear view mirror while driving down the
interstate, you will end up crashing! While the market is
generally going up, like during the last several years, it's much
easier to get lucky than it is when the market is going down.
Now, there is nothing necessarily "wrong" with day trading,
and there are many who day trade a small sum for the thrill,
while most of their money is in long-term investments. But the
market can turn against you when your long-term investing
outlook is no more than a few weeks, and the result is not very
pretty! On the other hand, a bear market allows long-term
investors to buy at low prices (like finding a good sale!) and
profit greatly when the economy turns back around.
Over the years, long-term investors will rack up consistent
annualized gains and build a great amount of wealth from even
small investments. It's called compounding and you've
probably heard of it before. It's the same phenomenon that
causes a penny, doubled every day for a month, to grow to
(drum roll) $10,737,418.24. Of course, investments will not
grow nearly that quickly, but you can see how one cent
becomes two, and two becomes four, and four becomes eight...
all the way to (repeat drum roll) $10,737,418.24.
If you invested $100 and earned 15% annually (rarely would
you actually gain 15% in any one year-some years might be up
40% while others are down 10%, or 20%, or 30%, or,
worse-you can never lose more than 100%, while possible
gains can keep growing forever!), after one year you would
theoretically have $115. However, actual results, as I said
before, might vary from $200 to $50!
It's better to look at long-term results, which include more of
the inevitable up and down swings of the economy. After five
years of 15% annual compounded growth, you would have
about $200, and after ten years you would have over $400. Go
all the way to 20 years, and that $100 will grow to over
$1,600! That investment will keep growing faster as it grows
larger. Plus, those long-term gains will add up even faster if
you add to your original $100, say $10 per month, or $120 per
year.
After 20 years, that $100 would balloon to $14,000; after 30
years it will grow to nearly $60,000, and after 50 years, you
can be a ...(another drum roll for the big word!) millionaire!
That is the beauty of long-term investing: start early, invest
what you can (even if it isn't much) and someday-not all that far
off-you will reap the rewards of this discipline.
Yes, long-term investing may be more boring than day trading,
but if you are serious about becoming a successful investor and
gaining financial security, you need to invest with a long-term
outlook. If you just want to trade stocks for kicks, day trading is
just your style, but don't count on being financially secure down
the road. Few people ever made a living gambling at the casino
every week. And very few are lucky enough to make a decent
living day trading. However, well over 50 million Americans
are building wealth for the future by wisely investing money in
stocks for the long term. The best way to become one of them is
to start early. |
